Danger to economy recedes as property bubble continues to lose air

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The property price bubble is deflating without inflicting
serious damage on the economy, much to the relief of the Reserve
Bank.

The bank published figures yesterday showing house prices in
Sydney continued to fall for a third straight quarter in the three
months to September 30.

Commonwealth Bank data showed prices were down 6.4 per cent in
the September quarter, while Australian Property Monitors' figures
showed a drop of 5 per cent.

In the past year Sydney house prices have fallen by 15 per cent
according to the Commonwealth and 8 per cent according to
Australian Property Monitors.

Nationally, house prices have fallen between 7.4 per cent and
10.4 per cent in the past year, with falls in most capitals.

A year ago the Reserve Bank said unsustainable house price
growth, and the growing possibility of a market crash, posed a
significant threat to the economy. But that danger is now
receding.

The bank said in its quarterly statement on monetary policy:
"The adjustment to date has been an orderly one, so that the risk
of an uncomfortably sharp decline in house prices does not appear
to be large, though equally there does not appear much risk of a
renewed upsurge at present."

The bank also said there had been a welcome slowdown in
borrowing, although the amount used to service debt remains at an
all-time high of about 9 per cent of household disposable income.
After peaking at $15 billion late last year the value of monthly
housing loan approvals has been relatively stable this year,
averaging just above $12 billion a month.

While lending to owner-occupiers has started to grow in recent
months, borrowing to property investors continued to slide, the
Reserve Bank said.